Stop playing Santa- you’re in the business to make money

Words like “corporate responsibility” and “business conscience” have become quite the buzz of late.  Many people think that businesses have become too selfish and that, in their pursuit for profits, they should also give something back to society.  Now that all sounds good if you’re Bill Gates or Sir Richard Branson and can afford that level of generosity.  But what if you’re a small business owner just starting out?  How far should, or can, you go when it comes to being generous?

Many small businesses make the mistake of giving too much.  So much, in fact, that it ends up negatively affecting their bottom line.  In order not to let that happen, you need to have a healthy balance between profitable activities and generosity.  Here are some key mistakes that many small businesses make on a regular basis:

Free information.  Yes, it is important to provide people with information about your company, especially if you’re just starting out.  Therefore, many small businesses regularly send out tons and tons of free brochures or information packages about the products and services they offer.  But does the amount of business brought in by them more than offset their costs?  Instead of sending these types of materials out randomly, it might be a better idea to selectively send them out to people who have specifically asked for such information.

Free samples.  Consumers love receiving freebies such as product samples.  But product samples don’t always convert consumers into customers.  Handing out product samples can become quite expensive if it is not done strategically.  Only make them available to your best prospects.

Donations.  Charities will come knocking on your door to ask for donations at one point or another.  A certain amount of donations to charity are always tax deductible.  But you are not Oxfam and you need to limit your donations to a few selected charities.  Learn to say no once in a while.

Employee perks.  In a small business, especially if it’s a family business, the culture of paternalism is very strong and employee loyalty is highly valued.  Therefore, when times are good, business owners often reward the employees that have stuck with them by giving them huge pay raises and bonuses.  But what happens when times get tough and such employee perks are no longer sustainable?  What if sustaining them means your profitability will be in the red?  When rewarding employees, make sure that you have the ability to sustain those rewards even when business is slow.

When charitable acts start to eat away at your profits, they become bad business practiceA.  Be prudent with your generosity if you are still trying to get your business off the ground.  If you go out of business, you won’t be in a position to help anyone at all. So stop playing Santa, and focus on the profitability and sustainability of your business.

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Stick to the knitting – focus on your core business

Small business owners who are looking to grow their business are often tempted by the idea of diversifying into other products or services.  However, a countless number of business ventures fail utterly when their owners decided to diversify away from the core of the original business.  Expanding into other product lines or services takes a large amount of time, effort, and resources.  

When a business doesn’t have enough of these to handle the expansion, you end up with a situation where both the new and old ventures suffer.  This is particularly the case for newly-established small businesses that have very limited resources to begin with. In the early stages of your small business, it is vital that you stay focused on your core business and its true strengths.  

In order to make the most out of your limited resources, you need to identify what it is that your business does best and concentrate on it.  Related and unrelated endeavours will distract away from what your business does best.  Your business may be involved in many things, but there has to be something that it does better than anything else.  

The Coca Cola Company, for example, produces a myriad of different drinks, but its main product is undeniably Coke.  If the company were to stop selling Coke, it wouldn’t survive.  So how do you get clear about what your core business is?  

You can start by asking yourself these questions: 

1. If you were forced to eliminate all of your products and services, and could only keep the one that is most crucial to the survival of your business, which one would it be? 

2. Why would a customer do business with you instead of a competitor?  What does he get from you that he can’t get from your competitor or anyone else? 

3. What one product or service is so important to your business that you would be willing to lose some customers for it? 

4. If your best customer had to deliver a 30-second speech about your company, what would he tell his audience? 

Answering these questions will help you to define what your core business is.  When you concentrate on your core business, you maximise the value you deliver to your customers by satisfying a critical need.  You also build-up your reputation and you’re identified with providing a certain product or service.  

Your customers will be attracted to you because they know with certainty that you will deliver what they need.  This is the best way to become a leader in your market.  So stick to the knitting, and focus on your core business!

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Broaden your marketing efforts

This is another important concept. If you currently run one radio commercial or use only your business cards to market your business, you’ll have limited the number of customers you can reach.

By broadening your marketing efforts in several directions, you’ll be able to reach more potential customers – and be able to convince them that they should be purchasing your product or service.

Mix your marketing efforts up. Don’t allow yourself to get stuck in a rut of simply sending out direct mail or advertising through an e-mail marketing campaign. Try something new.

Maybe you could send out a promotional item such as a pen once a month, and then follow up with a direct mailing that advertises a discount on your product or service the following week.

Keep things fresh.

People will see you as innovative – after all you’re always doing something new and they’ll never know what to expect next. This will give your business a reputation for professionalism and creativity, two important traits to customers.

Your clients don’t want to work with stuffy businessmen, but rather creative entrepreneurs who put thought into their customer’s needs and wants.

Marketing can take time to pay off.

However, you will notice that some efforts are more effective than others. Don’t waste your time and, more importantly your money, on marketing tools that clearly aren’t working. If your television commercial hasn’t brought in a single customer or made the phone ring, cancel the ad and book a radio spot instead.

Remember…You will have to experiment to find the best combination of marketing strategies and tools for your business.

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Business ratio

Learn 3 simple business ratios to identify negative trends in your business in less time than it takes to read your favourite newspaper.

Business ratios are tools that help you in evaluating the current performance of your business.  They are also very effective in helping you detect problem areas within your business before they get out of hand.  Business ratios are mathematical relationships between different items in the financial statements.  They are quite simple to calculate and learn, but require that you have some basic knowledge about financial statements.  

Today we will discuss three different types of business ratios, although there many more types that are used in business analysis on a regular basis. 

Liquidity ratios.  These types of ratios measure the ability of a business in meeting its short-term obligations.  One major business ratio under this category is the current ratio, calculated as follows: 

Current ratio = Total Current Assets / Total Current Liabilities 

The higher the current ratio, the more capable the business is in meeting its short-term obligations.  A current ratio which is lower than 1 usually indicates that the business is not able to meet its short-term obligations when they fall due.  Although a low current ratio is not a sign of good financial health, it doesn’t necessarily translate into bankruptcy because there are many different ways that a company can secure short-term financing to meet its emergency needs. 

Leverage ratios. These types of ratios measure the degree to which a business is financed by debt.  One major business ratio under this category is the debt to equity ratio, calculated as follows: 

Debt to Equity ratio = Total Long-Term Debt / Owners’ Equity 

A high debt to equity ratio usually means that a business has aggressively financed its growth with debt.  The risk in this is that the interest costs of the debt will not be covered by the return that is generated by the growth. 

Activity ratios.  These types of ratios measure how effective the business is in using its resources.  One major business ratio under this category is the inventory turnover ratio, calculated as follows: 

Inventory Turnover ratio = Sales / Inventory 

The inventory turnover ratio for a specific operating period essentially shows how many times a business’s inventory is sold and replaced in that period. A low ratio is usually an indication of poor sales or excessive inventories. A high ratio usually indicates a high level of sales or insufficient inventories to meet customer demand. For more information on how to read financial statements, take a look at my article “Impress your bank manager! How to read your balance sheet”.

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Why you should become a company

The New Zealand company tax rate was reduced from 33 to 30 percent from the beginning of the 2008/2009 income year – usually 1 April 2008 for companies with a standard 31 March balance date.

This applies to companies and other entities defined as companies by the Income Tax Act, including incorporated societies and unit trusts.

You’ll probably already know that company tax is the tax paid on the annual profit earned by a company.  The reduction to the company tax rate means most New Zealand companies will pay less tax on the profit they generate next year.

If you currently operate as a sole trader, it’s possible that you may pay more tax than if you operated as a company. 

There are many reasons to operate a New Zealand business under a Limited Liability company, rather than as a sole trader.  I have summarised the key benefits below for you.

Limited Liability

The main advantage of operating as a limited liability company is that risk is redirected from you as an individual to the company (as opposed to you as an individual when you are a sole trader).  A limited liability company is a legal entity in its own right and can hold property in its own name, can sue (and be sued) and usually has an indefinite “life”. 

Shareholders liability for the company’s debts is limited to the amount of the paid capital they introduced to the company.  If a shareholder holds 100 $1 shares, that shareholder’s liability for the company’s debts is limited to $100.  In a sole trader environment, the liability for debts incurred is unlimited, which could mean losing the family home and other possessions.

Registration & Protection of Name/Brand

When your company is formed, no other business or company in New Zealand should be able to reserve a name that is identical or very similar to your own name.  A sole trader has no protection in this sense if they are conducting business under a certain name/brand. That name can be registered by another entity in New Zealand and there is little to no recourse for the sole trader in question. 

Taxation & employing family members

A company provides significant tax benefits.  Individuals pay income tax at the rate of 19.5% on income up to 38,000; 33% on income between $38,000 but below 60,000; and 39% on all income above $60,000.  As previously advised, the company tax rate will be 30% as from 1 April 2008.

By introducing family members as employees and/or shareholders income splitting is possible to enable less tax to be paid at the higher rates. In some cases after individuals reach 60,000 of income, any additional company profits may be able to be taxed at 30% and retained as tax paid profits, thus reduce the total tax otherwise payable.

Approval from the Inland Revenue Department is required BEFORE you can pay wages to a spouse or family member of a sole trader.  Restrictions are placed on the hourly rate which can be paid but with a company there is no such restriction.  The amount of remuneration paid must be market rates.

Continuity

If a shareholder wishes to sell part or all of his or her shares the company continuity is not affected with a new shareholder. This would be different with a sole trader as the business has to be sold..

If you feel that a limited liability company structure may be right for you, please do not hesitate to contact us on 0800 836 836 to help you form one. 

Alternatively, if you would like to form the company yourself, you can do this at www.companiesoffice.govt.nz

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Use your home as a genuine business deduction

Your home office is likely to be one of your biggest business deductions.

Ask any proactive tax accountant or business person and they’ll likely agree with me.  Recorded properly, this is one of the all around best deductions dollar for dollar.

Since you probably work at home, quite a bit, you’ll be saving big money just by creating a work space in your home. To deduct part of your home as a business expense, the home office must be used regularly and exlusively in one of two ways:

Many people who run a small business use an area set aside in the family home for work purposes. If you are doing this, you can make a claim for the area set aside so long as:

*  It is used principally for business use (such as an office or storage area), and

*  You keep a full record of all expenses you wish to claim.

The responsibility for keeping invoices and records for a home office is the same as for any other business expenses you are claiming. You can claim a portion of the household expenses, such as the rates, insurance, power, mortgage interest and depreciation (if you own the house). You must keep invoices for these expenses.

You can only claim the expenses that relate to the area set aside for business. Work out the percentage of the work area, compared to the total floor area of the house. Then apply this percentage to the total house expenses.

Knowledge is power and if you don’t know what you are missing, how do become aware? Most importantly we help you to apply this knowledge and put it to work for you. Even if you’re only self employed on a part-time basis, we can help you tap into enormous savings in your everyday habits. 

Have you tapped into our other fr.e resources yet at: >>>  www.themarketingdude.com <<<

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Why your bank account may not reflect the sales that you have made

If you are just starting out with your small business, it could be that you are not too comfortable with the “ins” and “outs” of financial management. You may have been misled into thinking that your bank account is a good way to measure the sales that your business has made in a certain period of time.

To understand why your bank account is not an accurate reflection of your sales, there are a couple of things that need to be taken into account.

You need to realise that your bank account balance is the result of all the cash debits and credits that your business has incurred in a certain period. Debits are money items that were charged to your bank account and include cheques, cash withdrawals, and direct debits that were used to pay for the various expenses that your business incurred.

For example, if you had to pay rental fees for your office space, you may have written a cheque to your landlord and it would have been deducted from your account balance.

Credits are all deposits that are made to your account. If a customer wants to pay you for some goods he bought, he would pay the money directly into your account.

If you earn any interest on your account, that amount will be credited as well. Your bank balance reflects all the cash that your business earns and pays out, not simply the cash that is generated by sales.

The other thing you need to consider is accounts receivable. Most businesses will allow their customers to pay for their purchases after a certain amount of time has passed from the actual date of purchase. If a business has accounts receivable, it means that the sale has been made, but the money for the sale has yet to be collected.

Since a bank account only shows cash transactions that have already taken place, accounts receivable aren’t reflected in its balance. Depending on the type of industry you’re in, accounts receivable can make up a substantial part of your sales revenue. So referring to your account balance for an indication of how well your sales are doing could lead to false conclusions.

To understand how well your businesses sales are doing, it would be much more advisable for you to look at your profit and loss statement. This financial statement has an item called gross profit incorporated into it which reflects only the revenue that is generated by a businesses sales less any direct costs of production.

For those of you who are interested in learning more about small business accounting have a look at my article How to Prepare a Budget.

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Identify your target market for the best results

Before you begin, you must understand one thing. No matter how much money you spend on your marketing strategy, your attempts will be fruitless if you are marketing to the wrong audience.

Before you implement any marketing strategy, first identify your target client.

Determine who wants and needs your product or service. This will ensure that your marketing efforts have a greater chance of success.

You may have already defined your target market. You may have identified your clientele as middle class, 35-55 year olds. This isn’t enough information. You need to know your client intimately.

Learn their education level, their location, and their hobbies. Find out how your clients spend their money. The more you know about your target market, the better able you will be to tailor your marketing efforts.

Your marketing should speak directly to the audience and move them to use your service or purchase your product.

A survey of your target market will help you gain a better understanding of your clientele. You can make your product or service better, and improve communication with your customers by understanding their needs and desires.

Moreover, by listening to your potential customers and acting on their suggestions, you give the client a chance to put their personal mark on your business. What better way to motivate them to give your product or service a try?

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How to promote your business

As you know, customers are the lifeblood of your business. Without them, your business doesn’t stand a chance at success – and will crash and burn along with the many other small businesses that don’t survive their first five years.  No matter how much time and money you spend on your marketing efforts, you will only succeed if you target your advertising to the right audience and pay attention to the results.

Broadening the scope of your efforts will enable you to reach unlimited numbers of potential clients.  The key to successfully promoting your business is simple:

1. Establish your target market
2. Learn your client’s most intimate desires in order to find customers, bring them in to your business, and deliver exactly what they need (and keep them coming back for more!)
3. Stock your marketing arsenal with a variety of powerful advertising tools
4. Track your progress to determine what works for your business – and don’t be afraid to change your strategy as necessary

Once you’ve developed your marketing strategy, you need to ensure that your message cuts through the clutter and speaks to your customer. This is where your Unique Selling Proposition (USP) comes in.

Your USP should stand out from the crowd – and capture the essence of why your product or service is superior to the competitions’.  If you have already developed a USP for your company, take a moment today to review it.

Is your USP powerful enough to have customers queuing up at your door?

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Do you walk the talk?

Christopher Reeve is a hero to many people. His unbelievable courage after a terrible accident was truly an inspiration to many. Here’s a quote from him that I admire:

“I think we all have a little voice inside us that will guide us…if we shut out all the noise and clutter from our lives and listen to that voice, it will tell us the right thing to do.”

How true it is! And this “little voice inside us” captures the essence of our new gift book, Walk the Talk, by Eric Harvey and Steve Ventura. It reminds us that having values is very important, but it’s much more important to live them.

So sit back, turn up your speakers, and enjoy 3 minutes of inspiration from our new movie…Walk the Talk. Just click here …and don’t forget to share it with your friends and your team.

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